Chapter 5 Flashcards
(30 cards)
1
Q
Price controls
A
- legal restrictions on how high or low a market price may go
- take two forms
- price ceiling
- price floor
2
Q
Price ceiling
A
- a maximum price sellers are allowed to charge for a good or service
- ex. rent control
3
Q
Price floor
A
- A minimum price buyers are required to pay for a good or service
- ex. minimum wage paid to workers
4
Q
When are price feilings typically imposed?
A
- During crises - wars, harvest failures, natural disasters
5
Q
Price ceilings create what?
A
Shortages
6
Q
Four ways price celings create inefficiency:
A
- reduces quantity below efficient level
- misallocation of apartments among consumers
- leads to wasted time as people search for apartments
- maintain apartments in low quality
- also give rise to illegal behavior
7
Q
Deadweight loss
A
- the loss in total surplus that occurs whenever an action or policy reduces the quantity transacted below the efficient market equilibrium quantity.
8
Q
Deadweight-loss triangle
A
- the deadweight loss shown graphically
- above the supply but below the demand
9
Q
Deadweight loss is a loss to society
A
- it is a reduction in total surplus, a loss in surplus that accrues to no one as a gain
10
Q
Transfer of surplus
A
- A loss in surplus to one person that then accrues as a gain to someone else
11
Q
inefficient allocation to consumers
A
- people who want the good badly and are willing to pay a high price dont get it, and those who care relatively little about the good are only willing to pay a low price DO get it
- a result of price ceilings
12
Q
Wasted resources
A
- People expend money, effort, and time to cope with the shortages caused by the price ceilings
13
Q
Inefficiently low quality
A
- Sellers offer low-quality goods at a low price even though buyers would prefer a higher quality at a higher price
14
Q
Black market
A
- a market in which good or services are bought and sold illegally - either because it is illegal to sell them at all or because the prices charged are legally prohibited by a price ceiling.
15
Q
Minimum wage
A
- A legal floor on the wage rate, which is the market price of labor
16
Q
“Bonus foods”
A
- Government surpluses of food that are given to school lunch programs for free
- a result of price floors
17
Q
Both price floors and price ceilings…
A
- reduce the quantity bought and sold
18
Q
Inefficient allocation of sales among sellers
A
- those who would be willing to sell the good at the lowest price are not always those who actually manage to sell it
19
Q
Inefficiently high quality
A
- Sellers offer high-quality goods at a high price, even though buyers would prefer a lower quality at a lower price
20
Q
Does the United States have a low minimum wage?
A
Yes
21
Q
The most familiar price floor:
A
Minimum wage
22
Q
quantity control (quota)
A
- An upper limit on the quantity of some good that can be bought or sold
23
Q
Quota limit
A
- The total amount of the good that ban be legally transacted
24
Q
Liscence
A
- Gives its owner the right to supply a good
25
Demand price
* the price at which consumers will demand that quantity
26
Supply price
* the price at which producers will supply that quantity
27
Wedge
* between the demand price and the supply price of a good
28
Quota rent
* The earnings that accrue to the liscence-holder from ownership of the right to sell the good
* Equal to the market price of the liscence when the liscences are traded
29
When the demand price of a given quantity excees the supply price:
* Deadweight loss
30
